Netflix: Strong Bounce Off The Bottom Has Stalled (Technical Analysis)

Summary:

• This is a technical analysis article. Bottom fishers swoop in at Netflix’s bottom and keep buying until it gets too pricey.
• They will buy again when prices drop to retest support or the bottom. We expect price to be stopped on this attempt to reach the recent high.
• Our proprietary fundamental and technical rating for Netflix has dropped from a Buy Signal to a Hold Signal and you can see this at the top of the chart below.
• Seeking Alpha gives it top grades for Growth, Profitability, Revisions and Momentum but not Valuation.
• Therein lies the problem because bottom fishers are value players and they stop buying when a stock becomes too pricey.

Once the bottom fishers catch a big one, like Netflix (NASDAQ:NFLX), they stop buying as price moves too high. So it is no surprise that this great bounce NFLX had, off a deeply oversold bottom, is over and is struggling to get back to its recent high. We know the technical resistance that NFLX will face as it tries to get back to the recent high. Seeking Alpha gives us the Valuation breakdown of poor grades that will cause this resistance.

Our proprietary, fundamental and technical SID score is shown at the top of the chart below. You can see how our SID score improved to a Buy Signal as price made a nice bounce off the bottom. To obtain our SID Buy Signal, NFLX had to have both good fundamentals and good technicals. It did when price was at the bottom. However, now you can see that our SID score has dropped from a Buy Signal to a Hold Signal. Since the chart still looks good, we wanted to turn to the Seeking Alpha’s Quant system to do our due diligence and to find out what was wrong with the fundamentals.

Seeking Alpha gives NFLX top ratings for Profitability, Growth, Revisions and Momentum, so our research becomes easy. The only poor grade is Valuation and by hitting that tab we can see all the Valuation metrics have poor grades except PEG Non-GAPP (FWD).

After NFLX’s crash to the bottom, that burned many portfolio managers, the bottom fishers may be the only institutional buyers left. When they stop buying, price stops going up. We can see that happening on the charts below.

Here is our weekly chart with our proprietary Stocks In Demand, SID, signal at the top of the chart. It is color coded to identify the Buy/Hold/Sell levels.

On the above chart, you can see that we have drawn a vertical, blue line, Buy Signal indicating that Demand is taking price higher to retest resistance at $379, if it can get back up that high. On the chart below we show the strong resistance at $348, $352, $356 and $360.

Also across prices on the above chart, you can see that we have drawn a price resistance line at $379. We have drawn a horizontal support line at $285. Price is now consolidating its big gain on the bounce up, in this trading range. It will either breakout or breakdown from this trading range. We expect price to drop from $379 and retest $285. We think it has a valuation problem at $379, especially in a bear market.

Here is a Point & Figure chart showing the strong resistance levels that NFLX has to overcome if it hopes to reach $379 on this current attempt.

On the above chart we have circled the established resistance levels that this move up has to overcome just to reach $379 again. We think that will exhaust the buyers and we expect a drop to retest $285, especially if the broader market drops in May as we expect.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in NFLX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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